The death of "buy and hold" by Jean Jacques Chenier

The biggest myths on Wall Street is that investors should buy and hold stocks for the long run. Many studies show that stocks over the last 100 years have averaged about 8% real returns (net of inflation) a year. This is probably true, (there is some debate even on that number), but the problem, as we have experienced in the last ten years, is that those returns are very uneven. There are long periods of time where returns average far above that 8%, and then there are long periods of time where returns are flat or negative. For example, if you bought the Dow Jones Industrial 30 stocks in 1900 to 1940, or from 1966 to 1984, you would have had a negative “real return” (net of inflation).

The Wall Street mantra of “buy and hold” does not always check with reality. From 1900 to 1943 (43 years!) and 1962 to 1982 (20 years), the Dow remained in choppy trading ranges. Are we at the beginning of such a period?

Jean Jacques Chenier, London 8 September 2010